While it has been a tough 24 months for many construction firms in Qatar, the sector remains a key pillar of the national economy. The industry is one of the largest non-hydrocarbons sectors, and will likely increase in importance in the next decade.
A SAFE HAVEN: The GCC, generally speaking, has become a safe haven for international construction firms looking to protect their margins in a hostile global environment. It has a diverse range of contracts on offer and the region is steadily gaining a reputation as a flexible and wealthy patron of innovation in the fields of construction, architecture and associated services.
According to a June 2011 report by Ventures Middle East, there were $207bn worth of construction contracts awarded in the GCC in 2010, with buildings comprising the greatest share, at 42%, followed by energy projects (39%) and infrastructure projects (19%). While Qatar’s construction sector has grown in terms of regional importance, Saudi Arabia and the UAE were still the major markets in 2010, accounting for 52% and 21% of projects, respectively. Qatar had $2.36bn worth of projects in the same year.
KICKING OFF: This is likely to increase over the coming years as the country looks to ready itself for the 2022 FIFA World Cup. According to a report by Research and Markets, Qatar’s construction sector is set to grow at a rate of 12% per year until 2015, with the National Development Strategy 2011-16 suggesting the industry will account for a fifth of Qatar’s 9% annual non-hydrocarbons growth between 2012 and 2016.
Indeed, the rapid growth and diversification of the Qatari economy should provide ample opportunities for construction firms. According to the IMF, the country’s real GDP grew by 19% in 2011, while non-hydrocarbons GDP grew by 9%. The government has generated huge revenues over the past few years. In 2011 the current account surplus stood at 32.6% of GDP, while the fiscal surplus reached 7.2% of GDP.
CREDIT WHERE IT’S DUE: Much of construction growth will come from government spending. In October 2011 it was reported by Yousef Hussein Kamal, the minister of economy and finance, that the government will allocate 40% of its budget up to 2016 to infrastructure.
All of this suggests there will be plenty of contracts on offer for construction firms. Kazumi Ikeda, the managing director of Chiyoda Al Mana Engineering, said, “There are a number of major petrochemical projects in the areas of downstream and refining coming on-line, which present significant opportunities. In expanding downstream activities, there is a need for water and considering the lack of this important resource in Qatar, a major opportunity lies in water supply projects.”
The first green shoots of spending have been evident in the past 12 months. Ammar Ammar, the business development manager of Al Jaber & Partners in Qatar, told OBG, “Things have moved on in terms of issuing tenders since 2011. We’ve seen Ashghal begin tendering, we’ve seen the port and the railway releasing tenders.” More is expected for the coming years. Contracting firm PromerQatar’s CEO, Erhan Ekermen, told OBG, “Construction firms have mainly concentrated on survival in the past three years. It is anticipated that a change in focus will happen as soon as the market catches momentum in 2013 and beyond.”
NEW CONTRACTS: These infrastructure contracts should keep coming thick and fast. The government will issue three new tenders for QR27bn ($7.4bn) in 2012, according to a Qatar News Agency interview with Nabil Al Bouenain, the executive director of the New Port Project. In total a further 17 contracts will be issued before the port project is complete in 2016. This follows the issue of two large contracts in 2011 to China Harbour (QR3.2bn, $879m) and Middle East Dredging Company (QR4.5bn, $1.2bn). The country also has a number of other infrastructure projects under way. The often-overlooked power and water sector has 17 ongoing projects with a combined value of $14.8bn, according to Qatar First Investment Bank. There are also $2bn worth of road projects managed by Qatar Public Works Authority and Qatar Petroleum now under way in the market. It is not only such infrastructure projects that will be hitting the market in the coming decade. According to a breakdown of spending up to the World Cup in 2022 conducted by Qatar First Investment Bank, 30.8% will be on rail-related projects, 36.9% on roads, 19.1% on accommodation and 4.6% on stadiums. This presents a huge work plan for the World Cup alone. For example, the country will invest $12.4bn in accommodation, building 54 new team base camp hotels and 140 new properties, largely in the four-star category, which will bring 55,000 new rooms to the market. The construction of nine new stadiums will also require significant international expertise, especially if the government is to meet its target of hosting a carbon-neutral World Cup. The showpiece will be Lusail Iconic Stadium, an 86,250-seat venue designed by the UK’s Foster & Partners. The stadium will be powered and cooled by solar panels and will cost an estimated $662m to build. After the FIFA event has been hosted, the stadium will be reconfigured as a 20,000-seat venue for local and regional football games. Given the complexity of the engineering and structural challenges, there is likely to be a large international presence working on these stadiums. However, in other fields, local firms are expected to play a prominent role. Al Bouenain told Qatar News Agency that all infrastructure projects will be awarded exclusively to Qatari firms, or companies with a Qatari majority shareholder. This will likely help promote more joint ventures.
One international company to recently turn its attention to Qatar is France’s Bouygues. In January 2011 Dow Jones reported the company was looking to establish a joint venture with a local firm on a 49%-51% basis to bid on stadium, hotel and other developments in the state. Many companies are now jockeying for position and eyeing the potential of the Qatari market, which has led some to believe it is oversaturated.
PLENTY TO GO ROUND: Karem Akawi, the general manager of Drake and Scull Qatar, believes fears over too many competitors are overblown. “The main influx of contractors coming onto the market is coming from very small companies, so I believe that this is not affecting the market to a large extent, as the work that needs to be done will be fairly sizeable,” said Akawi. “There may be fierce competition among subcontractors for smaller jobs, which will benefit the large contractors as they will be able to secure cheaper prices.”
The sheer number of projects in the pipeline should ensure there is ample work to go around over the coming years. Government-led spending, which in itself should act as a catalyst for private sector development, will ensure that Qatar begins to close the gap on its neighbours when it comes to the value of construction contracts. The National Development Strategy 2011-16 forecasts that the construction industry will comprise 8% of GDP by 2016, up from 7% in 2009. This period, and beyond up to 2022, is likely to be a golden time for local, regional and international contractors.
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